A Guide on What Is Bitcoin Stock to Flow (S2F) model and How to Use It?

| November 17, 2023

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Bitcoin Stock to Flow

The anonymous Plan B proposed a bitcoin stock to flow chart in 2019. The stock-to-flow seeks to display the Bitcoin revaluation behaviour graphically.  

 Bitcoin stock-to-flow plan B’S model helps show how Bitcoin’s value might change over time. Stock-to-flow predicts how valuable Bitcoin could become in the future. The model generates a predictive chart that goes year by year until 2028.  

 The Bitcoin stock-to-flow model live chart models how much Bitcoin might be worth each year until 2028. Over time, we could see if the predictions made by the model were fulfilled with a certain margin of error.  

 The Bitcoin stock to flow Prediction model also considers the next Bitcoin halving event – since the next halving event will immediately impact the price. When halving happens, fewer bitcoins are made, meaning greater scarcity. 

Key Takeaways 

Stock to flow models help you assess the new supply of bitcoin relative to the existing supply.   

Bitcoin stock-to-flow chart/ model allow the investor to estimate how much Bitcoin might be worth in the future. 

 Bitcoin is different from many other assets because the amount of new Bitcoin in supply is always the same, regardless of the price.

What is Bitcoin? 

Bitcoin is a digital currency that uses peer-to-peer technology to support transactions. Bitcoin works without a centralized authority or banks. The network collectively manages transactions and mines new bitcoins.  

 Bitcoin’s design is open to the public. Anyone can be a part of the Bitcoin network. It’s not owned or controlled by corporations. Because of its P2P technology and other unique features, Bitcoin can do things that no other payment system could. 

 What is Stock-to-Flow? 

The stock-to-flow model is a way to figure out how valuable a commodity or asset is – cryptocurrency such as Bitcoin. The model assesses two attributes: stock and flow. 

 For instance – In the case of bitcoin, the amount already there will be referred to as stock and the total amount of new bitcoin mined and added each year will be termed flow. 

 Let’s use gold to explain. In history, about 187,000 metric tonnes of gold have been found, the total amount of gold ever mined. Gold doesn’t disappear, so most gold is still around. 

 Now, let’s see how much gold is found each year. It’s about 3,000 tonnes, according to experts. This is what we call the flow. 

 To determine the stock-to-flow ratio for gold, we divide the total gold (stock) by how much is added each year (flow). So, it’s: 

 187,000 / 3,000 = 62.3 

 This number tells us that it would take around 62 years to find the same amount of gold we have right now. When the stock-to-flow ratio is higher, the thing is rarer or harder to find. 

How is the stock-to-flow model used for Bitcoin? 

One interesting thing about Bitcoin is that we know exactly how much new Bitcoin comes into the world each year. This makes it possible to predict Bitcoin’s stock-to-flow very accurately. This differs from other things, like gold or silver, where we’re not sure how much is being produced. 

 There will be 21 million Bitcoins in total, but around 19.2 million have already been made. New Bitcoins are created when miners confirm transactions on the blockchain, following a predetermined schedule. The last Bitcoin will be made in the year 2140. 

Right now, miners get 6.25 new Bitcoins for every block they confirm. Since a block is confirmed every 10 minutes, about 328,500 Bitcoins are made yearly. This makes the current Bitcoin stock-to-flow Prediction ratio:  

19,171,050 (total Bitcoins) / 328,500 (new Bitcoins each year) = 58.35 

But Bitcoin’s supply increases at a different rate all the time. Every four years, something called a halving happens. This means the number of new Bitcoins made for confirming a block gets cut in half. The most recent halving was in 2020, and the next will be around 2024. So, when the next halving happens, the reward for confirming a block will be 3.125 Bitcoins. This will make the new supply of Bitcoin smaller, so the stock-to-flow ratio will become twice as big. 

Factors That Affect Bitcoin Stock-to-Flow (Note: also discuss the cross assets model) 

 A lot of things can affect how the Bitcoin stock-to-flow model live chart works. Let’s look at these factors more closely.  

  1. Halving Events: The Bitcoin stock-to-flow chart model is heavily influenced by Bitcoin’s halving events that take place approximately every four years. This event changes the total amount of new bitcoins generated and makes Bitcoin rarer. It impacts the stock-to-flow model ratio. 
  2. Market Demand: The demand for Bitcoin – investors who want to buy Bitcoin can change how its stock-to-flow works. If more people want it, the price can increase, which changes the stock-to-flow. 
  3. Adoption and Awareness: How many people are using and talking about Bitcoin as a valuable asset and store of value can influence the stock-to-flow. If more people start using it, its value might go up. 
  4. Market Sentiment: The stock-to-flow dynamics can change if the investors feel good about Bitcoin and the crypto market. Prices might go up when investors are positive, but if they are worried, it can negatively change the stock-to-flow. 
  5. Regulatory environment: Regulations, policies, and laws around Bitcoin can change bitcoin stock-to-flow plan B’s model. Suitable regulations and clear legal frameworks can have a positive impact, leading to increased adoption. 
  6. Economic Factors: The existing economic conditions, such as inflation rates, monetary policies, and global economic stability, can affect the bitcoin stock-to-flow Prediction ratio. If the economic condition is uncertain, investors might want Bitcoin to protect their money by hedging against traditional financial assets. 
  1. Technological Improvements: If Bitcoin’s technology gets better, like being faster, more scalable, or more private, it can change the bitcoin stock-to-flow plan B’s model dynamics. A major improvement in the bitcoin network can drive up the demand and might positively affect market perception.  
  2. External Events: Massive events happening across the globe, like hacks, cybersecurity breaches, or geopolitical tensions, can affect the stock-to-flow ratio for Bitcoin – driving demand up or down.  

 Bitcoin stock to flow model toolkit. 

 The stock-to-flow has two parts: stock and flow. For bitcoin, stock is how many are available now, which is 19.19 million. Flow is how many new ones are made each year and added to the total. 

 The math for this looks like this: Stock divided by Flow equals the SF Ratio. 

 Right now, the bitcoin stock is 19.19 million.  

 The flow, or how many new bitcoins are made annually, is about 356,029. That’s almost 975 bitcoins made every day. 

 So, if we do the math, the SF Ratio is 53.9. This number shows that it would take 53.9 years to make as many bitcoins as there are right now. 

Keep in mind that flow changes for a few reasons: 

  1. The difficulty of mining changes. 
  2. The Bitcoin network might get too busy. 
  3. The cost of the machines used to mine bitcoins changes. 
  4. Special events called halvings also change how many new bitcoins are made.

Is the Bictoin Stock-to-Flow Ratio a Good Model? 

In the long run, yes, the S2F model seems right. Well, at least it was until last year. But in the short term, Bitcoin is not doing what the model says it should. 

But this has happened before, where the model’s prediction didn’t come true, and yet, Bitcoin’s price eventually went back to what the model expected. 

 For example, if we used the S2F model from 2013 to 2015, it would have been wrong, as seen in the Bitcoin stock-to-flow model live chart. 

 But you can also notice that after this mistake, Bitcoin’s price did match the S2F model until the middle of last year (2021). 

 So, it’s possible that the model is still right, but unexpected things like the war in Ukraine or the Covid-19 pandemic can make Bitcoin’s price change more than the Bitcoin stock-to-flow plan B’s model can figure out. 

 Other BTC Forecasting methods 

 Even though it’s hard to predict the price of Bitcoin, many different ways are being used to try and figure it out. 

There are other methods, too: 

  1. Eliot Wave Theory: The Elliot wave theory studies patterns in the way Bitcoin’s price moves. The theory considers that the market goes up and down cycles, and it tries to predict these cycles based on how people feel about the market – crowd psychology. 
  2. Fulcrum Index: Greg Foss, who has years of experience in credit markets, came up with this theory. The Fulcrum index theory sees Bitcoin as an insurance for worldwide sovereign debt. The person behind this theory believes the price of Bitcoin could be between $108,000 and $160,000, but this is more of a long-term view. 

We’ll have to wait and see if these theories work in the long run. For now, figuring out the price of Bitcoin is still a big challenge. 

How to Trade Crypto Using the S2F Model 

Even though the stock-to-flow model for cryptocurrencies has some problems, it could still be helpful for trading. The idea is that if a cryptocurrency’s stock-to-flow ratio goes up, its value could also go up based on what’s happened in the past. This connection can guide people in deciding where to put their money. 

 If the stock-to-flow ratio is really high, like 50 or more, the cryptocurrency is rare compared to how much is produced, so its value might rise. Someone who sees this high ratio might sell some of their cryptocurrency while the price is high. On the other hand, if the ratio is low but expected to rise later on, they might choose to buy more. 

 Even though the stock-to-flow model isn’t perfect, it can still be a good strategy for dealing with cryptocurrencies. When considering investing in cryptocurrencies, this model is a forecasting tool that can help predict what might happen. 

Conclusion 

 Simply put, the Bitcoin stock-to-flow live chart model is a helpful indicator in finance, even though some people have doubted its accuracy. This tool has been used for valuable things like gold and silver. Now, it’s being applied to Bitcoin, which could make Bitcoin even more valuable if more people start using it. It would help if you were not too concerned about people wanting it because cryptocurrency is becoming more popular, and its value should increase over time.

More on Crypto

As we continue constructing a fully regulated digital asset custody platform, ensuring secure storage for both crypto and fiat assets remains a critical priority. 

To facilitate the last checkpoint of enabling institutions to convert their digital asset treasury into fiat currency, we’re expanding beyond pure wallet infrastructure and integrating seamless fiat off-ramp capabilities for our partners.

We’re thrilled to announce our partnership with Encryptus, licensed and compliant off-ramp solutions tailored for institutional clients. This collaboration elevates Liminal’s service offerings by empowering our partners to convert their digital asset treasuries into fiat currencies efficiently.

Integrating A Seamless Off-Ramp Solution

The digital asset ecosystem historically faced friction points when transitioning between fiat and cryptocurrencies. Off-ramp solutions address this pain point by enabling efficient and streamlined conversion between asset classes, minimising value loss and simplifying compliance processes.

Here’s how off-ramp changes the game:

  • Reduced Friction: Frictionless conversion minimises delays and operational complexities associated with traditional fiat-crypto exchange methods.
  • Enhanced Efficiency: Streamlined workflows expedite asset conversion, increasing speed and cost-effectiveness for institutional and individual users.
  • Optimised Value Preservation: Advanced off-ramp solutions prioritise minimising price slippage and value loss during conversion, protecting user portfolios.
  • Simplified Compliance: Integrated compliance features navigate regulatory complexities, ensuring adherence to relevant financial regulations.

With our partnership with Encryptus, we have embedded their institutional-grade APIs, connecting their off-ramp solution within Liminal’s wallet and custody platform. 

This integration simplifies our clients’ liquidation requirements while keeping their assets secure and more:

  • Effortless Digital Asset to Fiat Conversion: Our partners will be able to access treasury management and facilitate business payments in 54 countries and individual payments in an extensive network of 80+ countries.
  • Streamlined Compliance and Regulation: Our partners will be able to leverage Encryptus’s rigorous licensing and compliance framework, ensuring adherence to stringent financial regulations.
  • Enhanced Platform Value: We will be able to expand the functionality of the Liminal custody solution, attracting institutional users seeking comprehensive digital asset management capabilities.

Moving Towards A Robust Off-Ramp Partnership With Encryptus

The partnership between Liminal and Encryptus earmarks a significant step forward in secure digital asset custody, representing a shared commitment to pushing compliant practices while supplying institutions with easy access to convert their digital assets to fiat. 

For Encryptus, the opportunity to integrate with Liminal’s established platform presents a chance to reach a wider audience and scale their innovative off-ramp solutions to new heights. By streamlining fiat conversion within Liminal’s secure custody infrastructure, Encryptus gains access to a trusted network of institutional users seeking seamless and compliant treasury management.

For Liminal, this collaboration reinforces our dedication to partnering with companies that demonstrably prioritise clear governance and robust policy frameworks. By aligning with Encryptus’s stringent compliance standards, we reaffirm our commitment to building a secure and sustainable future for digital assets, where trust and regulatory certainty go hand-in-hand.

January 22, 2024

Hello world, it’s that time of the month when we share the biggest security breaches in the world of Web3 through our Security and Regulatory Newsletter. 

Liminal believes in optimizing security and custody practices globally across the Web3 industry. Through our Newsletter, we highlight security, regulations, and compliance incidents that have happened in the past month and how one can follow better Security practices to safeguard their digital assets. 

We will also highlight regulatory changes that might have happened globally, which were significant to the overall ecosystem.

Dive in and get a detailed analysis of everything security and regulation in the domain of web3 with Liminal’s Monthly Security and Regulatory Newsletter.

Web3 Security Compromises in January

Abracadabra exploited for almost $6.5 million, Magic Internet Money stablecoin depegs

The Magic Internet Money ($MIM) stablecoin has lost its dollar peg again, dipping all the way below $0.77 in a flash crash before returning to around $0.95.

The depeg appears to be related to an exploit of the Abracadabra lending protocol, which allows people to borrow $MIM. An attacker exploited an apparent flaw in the platform’s smart contracts to drain around $6.5 million.

Goledo Finance hacked for $1.7 million

Goledo Finance, an Aave-based lending protocol, was exploited through a flash loan attack. The attacker stole assets estimated by CertiK to be around $1.7 million.

Goledo Finance contacted the attacker to offer a 10% “bounty” for the return of the remaining assets. In a message on January 29, the attacker wrote: “I hacked Goledo and want to negotiate.”

Socket service and its Bungee bridge suffer $3.3 million theft

The Socket cross-chain infrastructure protocol was hacked for around $3.3 million in an attack that exploited its Bungee bridge. The thieves were able to exploit a bug that allowed them to take assets from those who had approved a portion of the system called SocketGateway.

A little over 700 victims were affected, and the highest loss from a single wallet was around $657,000. 121 wallets lost assets priced at more than $10,000.

On January 23, the protocol announced they had recovered 1,032 ETH (~$2.23 million) of the stolen funds.

Web3 Regulatory Practices for January

The EU Imposes Stricter Due Diligence Rules for Crypto Firms

On Jan. 17, the European Council and the Parliament came to a provisional agreement on parts of the Anti-Money Laundering Regulation (AMLR) that now extends to the crypto sector.

Under the new rules, cryptocurrency firms will be required to run due diligence on their customers involving a transaction amounting to €1,000 ($1,090) or more. 

However, the agreement isn’t final yet as it has to be first officially adopted by the Council and Parliament before the rules can be applied.

So, after the EU passed its landmark MiCA regulation last year, which clarified rules about cryptocurrencies, regulators are now targeting the space with tighter controls. 

While these regulations bolster security and trust in the crypto market, potentially attracting more cautious investors and combating financial crimes, they also present challenges. 

The US State of Virginia Introduces Digital Assets Mining Rights

Recently, the Virginia State Senate introduced Bill No. 339, which outlines regulations for the transactions and mining of digital assets and their treatment under tax laws. 

The legislation exempts individuals and businesses engaged in crypto mining activities from obtaining money transmitter licenses. Additionally, it protects miners from any discrimination. 

Issuers and sellers of crypto are also exempted from securities registration requirements if certain conditions are met. Moreover, those offering mining or staking services are not to be classified as “financial investment” but must file a notice to qualify for the exemption.

The bill further incentivizes crypto’s use for everyday transactions by offering tax benefits. Under this, up to $200 per transaction can be excluded from an individual’s net capital gains or gains derived from using crypto to purchase goods or services, starting from Jan. 1, 2024.

Key Takeaways:

  • Hackers continue to exploit vulnerabilities in DeFi protocols and cross-chain bridges, highlighting the need for robust security measures.
  • Regulatory frameworks are evolving rapidly, with stricter AML rules and supportive legislation for emerging technologies like crypto mining.
  • Staying informed about these developments is crucial for navigating the digital assets market safely and responsibly.

Stay #LiminalSecure

These events highlight the constant evolution of Web3 security and regulation. You can confidently navigate this dynamic landscape by staying informed and prioritizing security best practices. 

At Liminal, we’re committed to empowering institutions to unlock the full potential of digital assets without compromising security or compliance norms with our robust custody and wallet infrastructure solutions. Join us on this journey towards a safer, more accessible future for digital assets.

January 15, 2024

Buckle up as we’re about to take a trip down memory lane. 

The year 2023 was a wild ride that showed signs of a plummeting market, groundbreaking innovation and regulatory hurdles. 

Contrastingly, in the same year, we saw no market-shattering crashes. Financial institutions extending an olive branch, key jurisdictions unlocking the doors to blockchain technology. 

Simultaneously, at Liminal, we experienced significant breakthroughs, re-engineering our positioning and becoming a pioneer in digital asset security with bank-grade custody. 

We took major strides this year, right from building comprehensive products to becoming a qualified custodian, from revamping our brand design to expanding our offices in newer locations, from partnering with hyper-local communities to onboarding a diverse set of clients,  we did it all. 

So, let us take you through everything we accomplished in 2023 and what the future holds.  

Liminal Became A Qualified Custodian

One of the prominent moves we made this year was to change our positioning as a regulated custodian from being a wallet infrastructure platform. 

We got two licenses in key jurisdictions to operate as a regulated custodian. 

The first one came from Hong Kong, where we acquired the TCSP license issued by the SFC, which oversees and regulates financial activities to ensure compliance with legal and regulatory obligations. 

Our next license came in the MENA region, where we got In-Principle Approval for the FSP license granted by the FSRA, a governing body in ADGM, to establish a progressive financial services environment. 

Both these licenses paved the way for Liminal to push its wallet infrastructure and offer bank-grade custody to institutions looking to operate in these particular regions. 

Liminal Introduced A Suite of Products & Features

Continuing our building spree, we launched new products and integrations to broaden the existing infrastructure and added more parameters of security, scalability and sustainability. 

Staking-as-a-Service

Liminal launched staking for institutions to eliminate the risks involved in running staking nodes and the vulnerabilities in hot wallet transfer. 

Hence, we introduced an industry-first mechanism of cold wallet staking to ease staking for institutions and secure assets explicitly.  

Whitelabel Solution

Accelerating the go-to-market time for organisations looking to build a secure and customisable application, Liminal launched its whitelabel solutions

Targeted to help organisations meet security standards, manage assets with maximum control, and add their custom branding to give it a personal touch. Our whitelabel solution is a first-in-class custodian-developed solution for institutional grade custody.

Smart Consolidation

We are building not just secure custody but also automation-based features to eliminate manual errors, increase the throughput of transactions and scale institutional wallets. 

Taking this ahead, we launched the Smart Consolidation feature to automatically calculate all the active addresses and consolidate them into a single address. With this level of automation, managing multiple addresses becomes uber easy for wallet teams. 

Travel Rule 

To limit the use of cryptocurrencies for activities like money laundering and terror financing by regulatory bodies, travel rule was mandated for institutions to follow. 

Continuing the latest compliance integration policy, Liminal partnered with Notabene to introduce Travel Rule, enabling institutions to manage counter-party risk and extend the process of due diligence right from the Vaults dashboard.   

Liminal Accured List Of Security Certifications

Following our ISO certification for data privacy and risk management, we added two new security certifications to fortify our systems and build trust for our clients. 

Liminal Achieves Crypto’s Highest Security Mark: CCSS Level-3 Certified

Cryptocurrency security lacked a gold standard, creating a vulnerable ecosystem. Enter the CryptoCurrency Security Standard (CCSS), setting the bar for auditing and certifying custodian infrastructure and establishing levels of trust and confidence for investors. 

Liminal became only the second wallet infra platform and the first regulated custodian to be accredited with Level-3 certification, deeming wallets, transfer environments, workflows and engines safe and secure. 

Liminal Reciueved SOC 2 Type II Certification

To tackle threats in institutional-grade security, organisations’ SOC has been identified as the primitive compliance standard for service organisations to handle customer data.

Liminal successfully attained SOC 2 Type II certification, validating its setup of security controls & compliance processes to be industry standard. 

Liminal Level Up

Liminal unveiled its most significant platform upgrade ever, revolutionising the future design standard of a qualified custodian. This level-up activity included revamping our website and product UI, giving a completely new look and feel to not “Liminal” but “Liminal Custody”. 

The Liminal level-up activity was a strategic step and the biggest one for us this year to create an intuitive, inviting and tailored experience for our clients. 

Liminal Reached New Borders

We spread out our operations this year, reaching new borders and onboarding a new wave of institutions across gaming, DeFi, HNI wealth, treasuries, and exchanges! From Indonesia and Africa to India, UAE, and Korea, we are setting up custody operations worldwide. 

This isn’t just a roster of clients; it’s a network ready to spark connections, collaborations, and shared success to further the definition of secure assets. 

Liminal Collaborated With Law Enforcement Agencies

The best and the proudest moment of Liminal for this year was when we collaborated with CBI & Himachal Prashesh police department to aid them in seizing digital assets. 

This partnership put us on the map, as we became the first point of contact for LEAs in India, and we standardised the process of secure seizure of digital assets. Leveraging our expertise, we enabled a safe space for officers to learn the basics of custody, contributing to a safer digital landscape.

Team Liminal Grew Bigger

Building such a massive infrastructure, prioritising security and compliance over everything else, we had to grow the team to build at pace and expand at an even higher level. Not only did we grow in team numbers, but we also elongated our footprint to new destinations. 

Team Liminal went from 32 to 70 with 5 new offices in Mumbai, Ahmedabad, Hong Kong, Singapore and ADGM, setting up our custody operations steadfastly. 

What’s To Look Out For In 2024

We are excited to announce that our commitment to integrating the most secure digital asset wallets with a cutting-edge custody platform is swiftly becoming a reality. 

The upcoming year, 2024, will serve as a testament to this transformative journey. Moving beyond self-custody, we are constructing a comprehensive infrastructure encompassing both custodial and non-custodial wallets. Exciting products are set to launch starting from the first week of January, some of which are: 

  • Official Custody Platform Launch
  • Liminal’s Off-Exchange Settlement Hub
  • Secure Custody of Real-World ‘Tokenised’ Asset

The Web3 space has evolved explicitly this year, pushing the narrative of secure digital asset custody and security, introducing new regulations and compliance standards, licensing VASP providers and standardising the use of custodians as a trusted third party. 

At Liminal, we took major strides this year, from building comprehensive products to becoming a regulated custodian, from revamping our brand design to building the full infrastructure of custodial and non-custodial wallets.

January 5, 2024

Find Out How You Can Benefit From A Fully Self-Custodial Wallet Architecture